Most children occasionally receive some form of income stream during their lives. This could be in the form of an allowance, cash gifts from birthdays or holidays, or income earned off small jobs. This money can be used in different ways, but some parents--even kids--prefer to use the new money to learn responsible money management skills, as well as to start a savings nest egg for the future. There are several ways money can be invested for children in a way that the funds generate modest interest in low-risk, long-term investments.
Step 1
Visit a local bank and inquire about opening a savings account. Many banks offer small savings accounts for children to invest their money and slowly grow their funds. These savings accounts feature low rates and also have rigid rules regarding account use, since the amount of the funds is often so small. Typically, there is a cap to the number of withdrawals that can be made from the account every month. Some also charge monthly usage fees because of the low funds held in the account, so the terms of the account must be reviewed to make sure your child won't end up losing his money to bank fees.
Step 2
Review the rates of a credit deposit at a local bank. Credit deposits often require much larger sums of money than a savings account, but if your child has several-hundred dollars available to invest, a credit deposit is a no-fee alternative to a savings account. The credit deposit will lock up your child's money for a predetermined length of time, after which your child will be rewarded with the original funds plus interest earned on the account. The amount of interest earned rises depending on the amount of money invested and the length of the credit deposit.
Step 3
Place money in a savings bond if the money will not be accessed for several years. Most savings bonds offer multi-year investment deals that let the money continue to gain interest until it reaches maturity, often when the child is 18 years old or older. Some parents choose this method when they receive cash gifts for the child at their birth, protecting the funds and growing them over the early years of a child's life.
Step 4
Open a trust fund. This option is for very large sums of money, often earned through inheritance. Trust funds entitle the child to the fund once they reach a certain age, but they protect the money from being accessed and spent by other people before the child's maturity. Trust funds are a significant investment that should be done through an investment manager to ensure they are legally sound.
Tips and Warnings
- Keep children involved throughout the process of investing their money. This helps them learn money management skills while also gaining a better understanding of how investments are made.
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